Most common responses:
1) Inflation
Ever since Bernanke made trillions of dollars rain on the economy, pundits persistently cried about inflation. Many years later, where is the inflation?
Instead of inflation, we got deflation. iPhone’s, Televisions, Computers, Oil, Copper, (almost any other commodity)… have all gotten relatively cheaper since QE.
Deflation happened because of innovation.
No one predicted deflation because innovation isn’t in old school economic/wall street/federal reserve models.
As long as we keep on innovating can’t we afford to keep this party going?
2) We need to stop punishing old people. They don’t collect enough interest on their bank deposits.
Need not worry about the elderly, society ends up supporting 95% of their lifestyle anyways. How many 90 year olds need a $75k hip replacement? You have been walking for long time, sit down already.
Truth is, Americans don’t have large deposits at banks. Most families spend the majority of their monthly cash flow and don’t sock away cash savings. However, almost everyone has a 401k.
3) We just need an equity correction because its been ( insert amount of time), and we usually get a correction every ( insert amount of time).
Fuck off.
If you know of any good reason to raise rates, please let me know in the comment section.
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hhahaha
silence
Self preservation … a Republican could win the Presidency.
I do not think there is any possibility of a rate increase until vast quantities of debt are defaulted upon at which time govt bond rates will be much lower (and in some cases negative) than they are today.
The “inflation”, if you want to call it that, has been in asset prices such as equities and real estate. I don’t consider it inflation in the true sense as said prices are entirely dependent on a cheap credit market…and willing borrowers.
As for consumer electronics, prices have been falling and/or products improving since their introduction many decades ago and have nothing whatever to do with QE. Excepting the energy complex, the industrial metal prices are falling because demand is falling…not because of any revolutionary innovations in their extraction.
Regarding point #2, the case for higher rates has nothing really to do with any of those things, directly. It is about insurance companies and pension funds.
#3, equities will correct because debt across the board is beyond unprecedented. QE can delay it, but not stop it. If the fed could stop market crashes, then 2000 and 2008 would never have happened.
the inflation we should worry about is in the prices of goods, it makes no fucking sense to combat equity inflation.
I don’t think the fed is combating any inflation. The reason they are jawboning is that they do know:
1. cheap credit creates malinvestment
2. zero percent interest is indicative of an over-indebted economy that is very sick under the hood
The jawboning is simply an effort to build confidence in a vain effort to prevent the inevitable bankruptcy cascade.
true metal has fallen from demand, but energy has fallen because of innovation
Yes and no on energy. Oil spiked to $150 years ago due to fears raised by depletion reports on Cantarell field. That helped drive the fracking cause. If continuing demand were not a factor (and limited supply, fracking or not), oil would be $20 right now. I do not AT ALL believe the propaganda line that Saudi Arabia was out to wreck the fracking industry. In capitalism, that’s not possible as new capital formation would appear the moment it appears profitable to re-invest.
Excellent post.
But to your question, why raise rates? Recency bias. Too many on the FOMC remember inflation rates in the 70s/early 80s.
Not a good reason but it’s the best I can come up with.
you’re right, I agree they have too many old people on the FOMC
Unrelated comments on “inflation”
People like to point at medicine and food as evidence of inflation. That is wrong.
Medicine is an oligarchy, from top to bottom. Quantity of doctors available is effectively limited by the AMA, and, of course, supported by the doctors themselves. High tech medicine is increasingly expensive and the extensive govt approval process only adds to the cost. Last time I checked, most hospitals were non-profit organizations.
Food prices are currently well-supported by a restricted class of currency called SNAP. Despite this, prices fluctuate considerably on processed food as it is a high-margin item with room for price elasticity. Further fluctuation is the result of various pestilence affecting production. Global demand is a big factor in commodity items like wheat. Energy also figures in due to biofuel uses (i.e. corn). Without SNAP, dual use as fuel, and pestilence, food prices would be much lower, now.